Medicare: Methodology to Identify and Measure Improper Payments  
in the Medicare Program Does Not Include All Fraud (04-FEB-00,	 
AIMD-00-69R).							 
								 
Pursuant to a congressional request, GAO provided information on 
the methodology used to estimate the $12.6 billion in Medicare	 
improper payments, as reported by the Department of Health and	 
Human Services' (HHS) Office of Inspector General (OIG) for	 
fiscal year (FY) 1998, focusing on whether the methodology	 
included tests to detect improper payments resulting from	 
fraudulent and abusive schemes in the Medicare program. 	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   AIMD-00-69R					        
    ACCNO:   163210						        
  TITLE:     Medicare: Methodology to Identify and Measure Improper   
             Payments in the Medicare Program Does Not Include All Fraud      
     DATE:   02/04/2000 
  SUBJECT:   Evaluation methods 				 
	     Federal agency accounting systems			 
	     Financial statement audits 			 
	     Fraud						 
	     Health care programs				 
	     Internal controls					 
	     Overpayments					 
	     Program abuses					 
	     Reporting requirements				 
	     Medicare Fee-for-Service Program			 
	     Medicare Program					 

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AIMD-00-69R

United States General Accounting Office Accounting and Information
Washington, DC 20548 Management Division

B- 284484 February 4,200O The Honorable John R. Kasich Chairman Committee on
the Budget House of Representatives

Subject: Medicare: Methodologv to Identify and Measure Imnroner Pavments in
the Medicare Program Does Not Include All Fraud

Dear Mr. Chairman: This letter responds to your request for information on
the methodology used to estimate the $12.6 billion in Medicare improper
payments, ? as reported by the Department of Health and Human Services? (HI-
IS) Office of Inspector General (OIG) for fiscal year 1998. Specifically,
you asked whether the methodology included tests to detect improper payments
resulting from fraudulent and abusive schemes in the Medicare program. If
the estimate did not include such tests, you asked us to comment as to
whether the $12.6 billion estimate would be higher if the tests had been
included. Overall, our work shows that because the methodology was not
intended to detect all fraudulent schemes such as kickbacks and false claims
for services not provided, the estimated improper payments of $12.6 billion
would have been greater. How much greater, no one knows.

As we recently reported, ? the HI- IS OIG developed an overall methodology
to estimate the level of improper payments within the Medicare Fee- for-
Service program. The OIG developed and tested the methodology during its
audit of the fiscal year 1996 financial statements of the Health Care
Financing Administration (HCFA). Previously, no overall methodology existed
to estimate Medicare improper payments.

?Improper payments are payments made for unauthorized purposes or excessive
amounts, such as overpayments to program recipients or contractors.
According to the HI- IS OIG, the majority of the improper payments were
detected through medical record reviews. Once an improper payment is
identified, the provider has the option to appeal the decision and provide
more documentation to support the payment.

2F?inancial Management: Zncreased Attention Needed to Prevent Billions in
Improper Payments (GAO/ AIMD- 00- 10, October 29, 1999).

GAO/ AIMD- 0% 69R Efforts to Measure Medicare Fraud

The methodology was a significant step toward quantifying Medicare improper
payments. Its primary purpose was to provide users of HCFA?s financial
statements with an estimate of Medicare fee- for- service claims that were
paid in error. It was not designed to identify or measure the full extent of
levels of fraud and abuse in the Medicare program. The HHS OIG testified3
that the estimate of improper payments did not take into consideration
numerous kinds of outright fraud such as ?phony records? or kickback
schemes. 4 The methodology assumes that all medical records received for
review represent actual services provided. In response to the increased
focus resulting from the HI- IS OIG?s efforts in this area, HCFA is
developing plans to enhance its efforts to identify or measure Medicare
improper payments. We are currently reviewing these plans and will report to
you separately on them.

We are sending copies of this letter to Representative John M. Spratt,
Ranking Minority Member of the House Committee on the Budget; interested
congressional committees; the Honorable Donna E. Shalala, Secretary, and the
Honorable June Gibbs Brown, Inspector General, Department of Health and
Human Services; and the Honorable Nancy- Ann Min De Parle, Administrator,
Health Care Financing Administration.

Please contact me at (202) 5 124476 or by e- mail at jurmonn. aimd@ nao. aov
if you or your staff have any questions concerning this letter. Key
contributors to this letter were Deborah A. Taylor and James A. Kemen.

Sincerely yours, Gloria L. Jarmon u Director, Health, Education, and Human
Services

Accounting and Financial Management Issues (916330) 3July 17,1997, testimony
of the HHS Inspector General in a hearing before the House Committee on Ways
and Means, Subcommittee on Health, entitled Audit of HCFA Financial
Statements.

?he Anti- Kickback Act of 1986,41 U. S. C. sections 51- 58, makes it a
criminal offense to knowingly and willfuhy offer, provide, solicit, or
accept any remuneration for the purpose of improperly obtaining or rewarding
favorable treatment in connection with a contract or a subcontract for
supplies or services charged to the United States, including supplies or
services reimbursable by federal health care programs such as Medicare.

Page 2 GAO/ AIMD- 00- 69R Efforts to Measure Medicare Fraud

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